Troubled Western Global confirms loan purchase to stabilise operations
21 / 07 / 2023
The chief executive of troubled US freighter operator Western Global Airlines (WGA) has purchased outstanding loans to help shore up the company’s financial position.
In June reports emerged that the company was in talks with creditors and considering bankruptcy as it faced a liquidity shortage.
The Florida-based airline has now confirmed that chief executive and founder Jim Neff purchased the outstanding loans held by senior secured lenders on June 29.
“This was a positive step in an effort to protect WGA and provide the company additional time and resources, and the company immediately benefited from improved lending conditions,” WGA said.
“As a result of the purchase by Jim Neff, WGA has been positioned to continue to provide its customers with the safe and effective services they rely on.
“The company continues to believe that maintaining its operations and infrastructure is in the best interests of all stakeholders.
“Accordingly, WGA is working diligently with its advisors to explore all value-maximising alternatives and take the steps necessary to address its financial position.”
WGA said that after 10 years of profitable operations, it was currently navigating financial challenges driven by unforeseen industry-wide factors including the conflict in Ukraine, the weakened global economy and particularly air cargo demand, spiralling costs, and the recurrence of Covid-19 in China, which “disproportionately impacted WGA and its customers”.
Earlier this year, ratings agency Moody’s downgraded the carrier’s ratings from B2 and B3 – later withdrawing its rating – citing a liquidity shortage even though it had cancelled an order of two Boeing 777 freighters.
“The company’s $47.5m revolving credit facility, expiring February 15 2025, will likely remain fully utilised even after the company receives a return of certain deposits associated with its now aborted agreement to purchase two 777F aircraft from The Boeing Company,” Moody’s said in its March ratings review.
“Furthermore, all of Western Global’s assets are encumbered, limiting its ability to raise new funding on favorable terms. Additionally, declining operating block hours in recent quarters have contributed to weakness in Western Global’s revenues and cash flow.”
Moody’s said that the company faced elevated fuel prices and declining aircraft utilisation and a negative free-cash flow as of September last year.
It added that the ratings downgrade reflected the “modest scale, aged fleet composition, high customer concentration – top three customers were 64% of total revenue as of 30 September 2022 – and negative tangible equity”.
The company also responded to reports on a lawsuit bought by employees who felt that an Employee Stock Ownership Plan (ESOP) had bought overpriced shares in the company.
They also say that to finance the ESOP the company issued more than $400m in junk bonds, with the majority then purchased by Neff, that cost around $40m per year to service at an interest rate of around 10%.
In response, WGA the ESOP also included ownership in two affiliated aircraft leasing companies, that the ESOP was created through “extensive due diligence”, that there are no WGA shares in employees 401(k) accounts, that shares were granted to ESOP participants at “no out-of-pocket costs” and that the litigation relates to a putative class action lawsuit that was commenced by two pilots shortly after the ESOP was established.
The aircraft leasing company included in the programme transferred its aircraft to the airline as part of creating and funding the ESOP.
The company is also facing a $750,000 legal claim by Radiant Global Logistics.
According to its website, Western Global currently operates a fleet of 19 MD-11 and 747-400 freighters.
